News

6:47 am

Wed March 12, 2014

Governor’s MBR Includes Tax Cut

The governor’s budget update bill includes another state income tax cut – paid for by increases in two existing taxes.

Economists appear to be split on whether the idea is good or bad. Ohio Public Radio's Karen Kasler reports.

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The governor’s office says the proposal for an across the board income tax cut of 8.5% will bring the top tax rate down to below 5% - bringing the tax cuts that John Kasich has shepherded through the legislature to a total of 17.6% from 2011 till now, if this latest one passes. This tax cut comes courtesy of two increases in existing taxes – a hike in the severance tax to 2.75% of gross receipts on big oil and gas drillers, and a 60-cent jump in the per-pack cigarette tax, from $1.25 to $1.85. The Republican-dominated legislature hasn’t been very supportive of tax increases, and in an election year, that seems even more unlikely, even increases that polls show many people support. Conservative economist Richard Vedder from Ohio University says this fits in with the governor’s overall goal of shifting from income taxes to consumption taxes, which Vedder says he thinks will spur economic growth.

“The state budget numbers through the first eight months of the year are more than $300 million above estimates when they were put together last summer. So there’s a little wiggle room to negotiate, and I suspect that negotiation might come in the form of some reduction in that cigarette increase.”

But Zach Schiller at the progressive-leaning Policy Matters Ohio says this idea has problems. “Neither one of these taxes is what one would call a sustainable, long-term source of revenue, at least in the real long-term. What have we seen with the cigarette tax? It’s gone down as people have stopped smoking, and it probably will go down some more as it increases further.”

And Schiller says overall, he continues to be skeptical that income tax cuts will create jobs – because he says they haven’t so far. “Ohio has produced fewer new jobs than the rest of the country, and isn’t that the bottom line? That’s true whether you go back to when a big round of tax cuts were passed in 2005, and it’s true whether you go back to the end of the recession, whether you go back to the governor’s term – whatever time period recently, except for maybe the last month.”

But Vedder says, just wait. “I think tax changes take time to operate – there’s a body of academic evidence indicate that from the time you approve a tax cut before to the time it has a real impact is usually at least two to three years. So I expect one should show some patience in this. This is not an overnight fix.”

A cigarette tax increase could hit lower-income Ohioans hard, since there are more smokers in that population. But the MBR also includes some tax changes that would specifically benefit people making less than $80,000 – and even anti-poverty activists say a tax that could help poor people quit an expensive and dangerous habit may be worth it.